Stocks Finish Sharply Higher on Tech Stock Strength and Fed Rate Cut Hopes

The S&P 500 Index ($SPX) (SPY) Thursday closed up +2.03%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +1.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.79%.  June E-mini S&P futures (ESM25) are up +2.05%, and June E-mini Nasdaq futures (NQM25) are up +2.80%. 

Stock indexes rallied on Thursday, with the S&P 500 posting a 3-week high and the Nasdaq 100 posting a 2-week high.  Strength in megacap technology stocks and chip makers boosted the broader market after Texas Instruments and Lam Research reported better-than-expected earnings results.  Signs of a stable US labor market also support stocks after weekly initial unemployment claims rose as expected, and weekly continuing claims fell to a 10-week low.  In addition, lower T-note yields are positive for stocks, with the 10-year T-note yield falling -7.6 bp to 4.305% after Cleveland Fed President Hammack said the Fed could cut rates in June if it has clear, convincing data and after Fed Governor Waller said he would support Fed rate cuts if tariffs led to job losses.

Stocks extended their gains Thursday when President Trump said his administration was talking with China on trade, despite China denying the existence of any negotiations.  Trump said administration officials “had a meeting Thursday morning, and we’ve been meeting with China.” 

Stock gains are limited by the concern that there will be no quick resolution to the China-US trade war.  Treasury Secretary Bessent said President Trump hasn’t offered to take down US tariffs on China on a unilateral basis.  Also, China’s Commerce Ministry said the US should revoke all unilateral tariffs and “show sincerity” if it wants to make a trade deal, and “any reports on development in trade talks are groundless.” 

US weekly initial unemployment claims rose +6,000 to 222,000, right on expectations.  Weekly continuing claims fell -37,000 to a 10-week low of 1.841 million, showing a stronger labor market than expectations of 1.869 million.

US March capital goods new orders nondefense ex-aircraft and parts rose +0.1% m/m, right on expectations.

The US Mar Chicago Fed national activity index fell -0.27 to -0.03, weaker than expectations of 0.12.

US Mar existing home sales fell -5.9% m/m to a 6-month low of 4.02 million, weaker than expectations of 4.13 million.

Dovish Fed comments Thursday were supportive of stock and bonds.  Cleveland Fed President Hammack ruled out a Fed rate cut at that May 6-7 FOMC meeting but said, “If we have clear and convincing data by June, I think you’ll see the committee move if we know which is the right way to move at that point in time.” Also, Fed Governor Waller said, “If we see a significant drop in the labor market due to aggressive tariff levels, then I think it’s important that we step in” and lower interest rates.

The markets are discounting the chances at 8% for a -25 bp rate cut after the May 6-7 FOMC meeting.

This week’s market focus will be on Q1 corporate earnings results and any changes to US trade policies.  Friday brings the revised University of Michigan April consumer sentiment index (expected no change at 50.8).

Q1 earnings reporting season is in full swing.  According to data compiled by Bloomberg Intelligence, the market consensus is for Q1 year-over-year earnings growth of +6.7% for the S&P 500 stocks, down from expectations of +11.1% in early November.  Full-year 2025 corporate profits for the S&P 500 are seen rising +9.4%, down from the forecast of +12.5% in early January.  

Overseas stock markets on Thursday settled higher.  The Euro Stoxx 50 closed up +0.32%.  China’s Shanghai Composite rose to a 3-week high and closed up +0.03%.  Japan’s Nikkei Stock 225 climbed to a 3-week high and closed up +0.49%.

Interest Rates

June 10-year T-notes (ZNM25) Thursday closed up +18 ticks.  The 10-year T-note yield fell -7.6 bp to 4.305%.  June T-notes on Thursday settled moderately higher due to carryover support from strength in European government bonds.  T-notes also have carryover support from Wednesday when President Trump said he had no intention of firing Fed Chair Powell, easing concerns over the Fed’s independence, which could have sparked foreign selling of dollar assets, including Treasuries.   T-notes extended their gains on dovish Fed comments after Cleveland Fed President Hammack said clear data could prompt the Fed to cut interest rates in June, and Fed Governo Waller said he would support Fed rate cuts if tariffs led to job losses.  

Limiting gains in T-note prices Thursday was rising inflation expectations after the US 10-year breakeven inflation rate rose to a 3-week high of 2.317%.  Also, weak demand for the Treasury’s $44 billion auction of 7-year T-notes was bearish as the auction had a bid-to-cover ratio of 2.55, weaker than the 10-auction average of 2.64.

European government bond yields Thursday moved lower.  The 10-year German bund yield fell -4.9 bp to 2.448%.  The 10-year UK gilt yield fell -5.2 bp to 4.500%.

Eurozone Mar new car registrations fell -0.2% y/y to 1.030 million units, the third consecutive monthly decline.

The German Apr IFO business confidence index unexpectedly rose +0.2 to a 9-month high of 86.9, stronger than expectations of a decline to 85.2.

ECB Governing Council member Rehn said the ECB would probably have to lower interest rates further and shouldn’t exclude a larger reduction than 25 bp.

Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at the June 5 policy meeting.

US Stock Movers

Magnificent Seven stocks moved higher Thursday and supported gains in the broader market.  Nvidia (NVDA), Amazon.com (AMZN), Tesla (TSLA), and Microsoft (MSFT) closed up more than +3%.  Also, Meta Platforms (META) and Alphabet (GOOGL) closed up more than +2%, and Apple (AAPL) closed up more than +1%.

Chip stocks rallied sharply on Thursday due to some better-than-expected earnings results.  Microchip Technology (MCHP) closed up more than +12% to lead gainers in the Nasdaq 100, and ON Semiconductor (ON) closed up more than +8%.  Texas Instruments (TXN) closed up more than +5% after reporting Q1 revenue of $4.07 billion, above the consensus of $3.91 billion, and forecast Q2 revenue of $4.17 billion-$4.53 billion, stronger than the consensus of $4.12 billion.  Also, Lam Research (LRCX) closed up more than +6% after reporting Q3 adjusted EPS of $1.04, above the consensus of $1.00.  Other chipmakers rallied on the news, with Marvell Technology (MRVL), ARM Holdings Plc (ARM), Broadcom (AVGO), and NXP Semiconductors NV (NXPI) closing up more than +6%, and GlobalFoundries (GFS) closing up more than +5%. 

ServiceNow (NOW) closed up more than +15% to lead gainers in the S&P 500after reporting Q1 subscription revenue of $3.09 billion, better than the consensus of $3.08 billion and forecast Q2 subscription revenue of $3.03 billion-$3.04 billion, stronger than the consensus of $3.02 billion. 

Hasbro (HAS) closed up more than +14% after reporting Q1 net revenue of $887.1 million, well above the consensus of $769.2 million. 

Allegion Plc (ALLE) closed up more than +10% after reporting Q1 adjusted EPS of $1.86, better than the consensus of $1.68.

United Rentals (URI) closed up more than +9% after reporting Q1 adjusted EPS of $8.86, stronger than the consensus of $8.66.

Edwards Lifesciences (EW) closed up more than +6% after reporting raising its full-year sales forecast to $5.7 billion-$6.1 billion from a previous forecast of $5.6 billion-$6.0 billion, the midpoint above the consensus of $5.81 billion. 

Fiserv (FI) closed down more than -18% to lead losers in the S&P 500 after reporting Q1 organic revenue rose +7.0%, weaker than expectations of +8.48%.

LKQ Corp (LKQ) closed down more than -11% after reporting Q1 revenue of $3.46 billion, weaker than the consensus of $3.59 billion. 

Alaska Air Group (ALK) closed down more than -9% after forecasting Q2 adjusted EPS of $1.15-$1.65, well below the consensus of $2.41. 

International Business Machines (IBM) closed down more than -6% to lead losers in the Dow Jones Industrials despite reporting better-than-expected Q1 earnings after it said economic uncertainty and US government cost cuts may affect future earnings. 

PepsiCo (PEP) closed down more than -4% to lead losers in the Nasdaq 100 after reporting Q1 core EPS of $1.48, below the consensus of $1.49, and cut its full-year organic revenue outlook to a low single-digit increase from a previous view of mid-single-digit growth.

Comcast Corp (CMCSA) closed down more than -3% after reporting  Q1 pay-TV customers fell by -427,000, a larger decline than the consensus of -409,300. 

Tractor Supply (TSCO) closed down more than -3% after reporting Q1 net sales of $3.47 billion, weaker than the consensus of $3.53 billion.

Robert Half Inc (RHI) closed down more than -3% after reporting Q1 revenue of $1.35 billion, below the consensus of $1.41 billion, citing US trade policy weighing on business confidence. 

Earnings Reports (4/25/2025)

AbbVie Inc (ABBV), Aon PLC (AON), Centene Corp (CNC), Charter Communications Inc (CHTR), Colgate-Palmolive Co (CL), HCA Healthcare Inc (HCA), LyondellBasell Industries NV (LYB), Phillips 66 (PSX), Schlumberger NV (SLB).